Optimize Your ACoS With
Powerful PPC Strategies
Watch our Webinar recap where we discuss what metrics drive ACoS on Amazon, the approach you need to have when it comes to your ACoS strategy, and tips that will really help you maximize it?
Pooja Kothari: So, hello everybody. And thank you for joining in today. We are going to talk about the top strategies for optimizing your ACoS. We also have some prototypes along with some secret sauce that Anuja has got for us that will help you really optimize your ACoS. We would like to introduce ourselves in case you do not see us in the first few minutes. It’s me Pooja. I work as a marketing manager at DataHawk and I pass it back on to Anuja to introduce herself.
Anuja Thulasi: I’m Anuja and I am a colleague of Pooja. I work as a marketing coordinator.
Pooja Kothari: And she’s our very own in-house DataHawk expert and Amazon expert.
Anuja Thulasi: Yes. I didn’t want to be bossy and that’s why I didn’t say it. I was about to say it. I was like, you know, I have a passion for it. I know, I think, but then I was like, maybe I should turn it down and not boast about it.
Pooja Kothari: Okay. So, today’s agenda. We are gonna cover the top matrix that drives your ACoS and the impacts it has they have on your ACoS? Data driven approach towards optimizing your ACoS. And a few bonus tips to maximize the ACoS strategy. We all know that advertising products on Amazon is becoming more and more complex and important, right? When consumers go to Google, they’re doing research, but Amazon is where they purchase it. If you don’t appear in the right search queries on Amazon, your e-commerce strategy is never gonna get off the ground.
If you want to shortcut your way to the top of the Amazon listing, paid advertisement is the fastest route. Now, why should you care? The chart from [inaudible], that you see here shows the leading search advertisers on Google in the United States. More than 70% actually of online shoppers click on Amazon’s product ads while browsing, but to get this right takes planning. If you don’t use the best keywords and bidding strategies, you either won’t be included in the relevant searches or you’ll pay too much for the clicks on irrelevant queries.
Both of which will waste your money. And when optimizing a cause for Amazon ads, you should think about efficiency, profitability, and sales, and the number of impressions you’re getting. When looking at advertising efficiency, ACoS is one key factor to look at. And in today’s life session, we’ll be breaking it down into multiple factors that impact ACoS on Amazon. But before we get started, it is very important to understand that sometimes advertisers on Amazon judge the success of their campaigns using just one metric, which is ACoS, of course. It’s easy to see why because ACoS represents the ad spend as a percentage of sales.
For example, if you spend $5 on ads and generate $25 in sales, your ACoS is 20%, which is a simple measure of how profitable your ad is. The lower the cost, the cheaper it costs to generate a sale and vice versa. Since we are talking about the relationship between your ad revenue and ad spend, do not forget to also have a closer look on your Amazon ROAS, as it may provide a clearer comparison with the ROI of other marketing efforts. Having said that, Anuja, I pass it on to you to take it from here on ACoS.
Anuja Thulasi: Thank you. I’ve been waiting and ready to rumble. I was just like, hmm, I will give it some time. So now that Pooja has laid the foundation for us, let’s get started. Let’s know more about what impacts the ACoS. So let’s get a few things out of the way. So ACoS is the advertising cost of sales. It’s a great way to assess your PPC campaign health, because it helps you understand, as Pooja mentioned, that every dollar you earn, how much of it is spent on ads? Or you can say it represents ad spend as a percentage of your sales revenue.
So let’s start off by really understanding what ACoS is. Pooja already, as I said, laid the foundation, but a few things to keep in mind is that there’s no numerically good or bad ACoS. There are different factors that come into play, like the kind of marketplace you’re operating and the kind of ad type that you are bidding on, the competition, the product price, etcetera, etcetera.
So, what’s, quote unquote, good for one business is not necessarily good for you, right? Having said that, it is imperative you know that the lower your ACoS is, the better your ad is performing. And the higher ACoS generally means you’re spending all of that money, but the returns are totally not worth it. Now that we have all of that out of the way, let’s talk math. Like, you know, I used to hate math. Now, we are doing this. Now I have to love math. ACoS is, well, ACoS is like ad spend, which is like divided by ad revenue and 100, because it’s a percentage, right?
The important part here that we need to focus for, what I am getting to is like ad spend divided by ad revenue. That’s where the game is. So we break it down further because we are talking math right now. Ad spend is made up of cost per click. And the number of clicks is basic, right? The amount of money you are spending is the total clicks in the cost of one click. Ad revenue is how many orders are placed and the average selling price. So it makes sense. Let’s break it down even further.
The clicks are the result of the number of impressions, and it’s basically how often you add a PS in front of a shop and a click through rate or the CTR, right. Click through rate into the number of impressions. Order is dependent on the clicks and conversion rate. I’m sure you can see where I’m going. These metrics are some of the main numbers that impact your ACoS. It’s like driving a car, it’s not the one thing that helps you gain speed.
It’s multiple things coming together, the acceleration, the gear, the brakes, etcetera, etcetera. In this case, it’s the click through rates. It’s the CPC. It’s the impressions. It’s the clicks, average selling price, average conversion rates, all of these like small, all of these different metrics come together to impact your ACoS. These are numerical metrics that make a difference when it comes to your ACoS.
So, let’s take a second to see what I mean when I say it impacts the ACoS. We’ll take 1, 2, 3 different elements as an example, with click through rate, for example, super important. It shows how often someone who viewed your ad ended up clicking on it. This one is kind of direct. Like if you’re selling, say a pen and the pen shows up, someone sees it and clicks on it. Great.
Most likely they’re gonna buy it. And the CTR, being high, means the keywords that you used were relevant because it showed up in front of the consumer. So they clicked on it. So, the click being on the higher end of the click through rate is amazing, which would lead to a lower ACoS, which is what we want. Another way to look at it is conversion rate.
If your product isn’t typically considered relevant for where you are selling, it’ll be given a low relevance score by Amazon. Meaning you’re bidding higher to compensate for the low relevance score to appear in that ad. Meaning your advertising cost of sale is gonna be higher because you’re bidding higher.
Another one of the elements when I was talking before was CPC. We take the same example of the pen. So this pen, like you see on the right, this screenshot, you’ll see the first four are sponsored ads, right? Because it’s more or less a saturated market. You go on Amazon and you look for a pen. The top couple of products are all sponsored and they’re likely getting most of the business too, because it’s a pen.
You’re not gonna scroll to the bottom to look, unless you have a very, very specific pen in mind. You’re most likely just gonna see the top four and be like, oh, okay, this fits my budget. I’m gonna take it. So you are gonna need to bid higher, as a pen businessman, you’re gonna need to bid higher to get those spots or close to the spots, which means you have a higher cost per click, which again, leads to your higher ACoS. We do not like that.
Pooja Kothari: That is so well put Anuja. I just want to quickly add one thing: cracking correlations between your ad spends and ad sales and indirectly, you know, your ranking is really significant. A lot of people also talk about price points, you know, to generate more revenue. Something that could probably work for you.
You know, if the price increases your results and decreases your sales, you should then definitely opt to strategize [inaudible] to try more sales until the product starts to really gain momentum. This, along with a competitive price point, you need to have insights into advertising performance as well. And therefore it is really imperative to have presumably collected data on your ads so that you can use that data or the data of each campaign’s performance on a regular basis. And I think that’s where you are headed as well.
Anuja Thulasi: Yeah, actually, thank you so much because it kind of gives me a segue into what I’m about to talk about which is like a data approach, right? So we’re talking about what do you do? Like we haven’t mentioned what it causes. We are telling you, what metrics exactly. The numerical metrics make a difference, but what exactly do you do with this information?
The first thing, and I think this applies to most things is that you monitor and you analyze your numbers, right. Why? Because using, and especially using tools and resources that can help you visualize stats as you mentioned, right? You mentioned ad expense and ad sales were important because you get to visualize the amount you’re spending and the returns on it. And it kind of helps you compare your monthly end meeting things. Along with the fact that it shows you it’s even better if it shows you things like ad profits and ACoS. There are multiple different tools available, of course.
But I would like to kind of take attention to the tools that we have come to love here at DataHawk. No surprise there. So we have this thing called advertising, which basically is this dashboard that gives you a full look as to like all of the different metrics that you kind of need to, we believe, see, and actually factually see, to be able to make the right and analyzing things.
So you see all of your returns on ad spend in one place, and this kind of helps you understand what strategy has worked. And if you’re AB testing, this is especially useful because if you’re seeing all of these, you can change the months or weekly or daily timeframe, and then you can see what has worked, so you see ad spend, you see ad sales and you see ad profit. You’re talking about ACoS, of course, but all of these things in one place kind of helps you correlate what is happening in terms of your ad spend. And you can see, and you can analyze it. Which helps you
make, for example, the ad spend on say, Janet.
Okay, so Janet we have 2,820 as ad spend and ad sale was 12,620, so it helps see all of this in one page, it’s not like stuck in one point and the other point it’s quite there. So, and the tool shows the ad profit, as I mentioned previously, it’s even better because, well, you know, the profit you made because of this particular ad running. Going back to the next point is like understanding the different KPIs, like the average conversion rate, the click through rate and other KPI, right? The effects of an average, we will talk about the effects of average conversion rate, and other KPIs.
If any average conversion rate goes up, the ACoS is most likely gonna go down, right? If you want to improve your average conversion rate, one way would be using negative keywords because it prevents your ads from being shown to people, searching for words or phrases you don’t want. So that’ll help your ACoS go down because, well, we don’t want our ACoS to go up. So if we go back to this dashboard and you see all of these different metrics, we scroll to version rate.
This is the particular graph I’m talking about right now, this tool, it helps you see your conversion rate, which will help you understand whether the customer who sees your ad is actually buying it. And after there’s a conversion that is usually done by the dropped product [inaudible], right. If the shopper decides to not buy your product after clicking the ad, the conversion rate will be negatively impacted for that keyboard.
This will drive up your ACoS because someone came to you, clicked your a and then decided like, hmm, you know, like this is not the thing for me. It’s not really working for me. So it’ll drive up your ACoS. Another thing as you were mentioning different metrics is clicks and impressions, and this here helps you kind of compare your clicks and your impressions, and this way you have a view of all your few metrics, as I mentioned previously, that impact your ACoS in one place. Talking about, say another important KPI click through rate, right? As I mentioned previously, the click through rate shows you how often the people who viewed your ad ended up actually clicking on it.
The click through rate will kind of help you determine the quality of your listing, such as the quality of the imagery, your position, and keywords or like the number of videos, like it shows the quality of the product. So the more relevant your keywords are to your business, the more likely the users will click on it. So this chart here gives you the monthly view. If you change it to a yearly or a daily view, all of these metrics will change to your daily or monthly or yearly view, which again, helps to kind of understand what it is. What all the monitored metrics and how it’s working. So now that we have gotten that out the way, as
I’ve already discussed all of this, we talk about leveraging product information on advertising. So having tools that help you get a birds eye view of all of the advertising KPI on a product level is also important. Why? Because it gives you the thing, having the understanding of which of the products are the least
profitable, with the highest ACoS will let you do damage control, or like reduce your overall ACoS.
This kinda allows you to group your products with maybe similar profit margins together, or each will help you identify your break even ACoS. This will also help you, excuse me, if it will also help you know if your ad campaigns are actually profitable or if it’s just like money down the drain. So again, we go to our
favorite tool. We see, we saw all of this. Now we are talking about product level, right? So, this is like a tool like DataHawk. It shows you a detailed view of all of your KPIs on a product level, and it’s incredibly helpful, right?
So if you want, you can click here and most tools have this where you can kind of, well, actually, I don’t know if most tools have it, we’re awesome. So, you can kind of pick and choose what you want to see. So you don’t get distracted by all the metrics, or you want to see all of the metrics and you see what. You could just, you know, apply all the filters and see the KPIs you need. In many cases, a low bid on a CPC tends to result in a lower ACoS and a lower profit for sold units, which causes the cost for a sold per unit to be lower.
So having said that we all know little bit can also lead to fewer impressions meaning fewer clicks and sales. So what is the conclusion of me going on and on about all of this is it’s all about balancing and focusing on both efficiency and the profitability and sales and impression. And a product like a tool like this kind of
helps you do all of that very easily, depending on the kind of marketplace you’re in or the different campaigns you have. If you want to see daily, monthly, whatever, it kind of helps you vision out and kind of strategize and decide how to take your strategy forward. And, well, that’s about it from my end on this.
Pooja Kothari: Very clearly put. Yeah, that’s true. Ultimately, you want to ensure that your advertising dollars are being spent wisely and they’re producing the desired results, right? Whether that is expanding product visibility, higher conversions or increased sales and analyzing.
Anuja Thulasi: Yeah. And you know, most likely, sorry, I didn’t mean to interrupt, but like I’ve seen this happen often where people tend to anyone, well, most professionals wouldn’t make these mistakes, but they tend to just pump in money without quite having the holistic view of what’s happening. And they just like, oh, you know, my ACoS is just, it’s doing okay. They don’t kind of benchmark their competitors. They don’t understand what is, what is working. What’s not working. They don’t have the view for it. They don’t track anything. So this leads to them just being, going in blind and assuming that it’s just gonna work, which most days doesn’t happen, if it does happen, it’s most likely a fluke. Right.
Pooja Kothari: Yeah. And having, you know, a dashboard like that, or having a setup where you can monitor or track each of these metrics on a daily basis, could, could, massively change how you are bidding on your products or how you’re dealing with your ads budget on the whole, right? Okay. With that, we move to the bonus tips. The first one being, practice search term isolation. So let’s see this, what is search term isolation?
At its simplest search term isolation is bidding on Amazon search terms that convert while negating search terms that don’t. So you only put money towards the best keywords with the best bids. Amazon bidding will let you choose broad match, phrase match, and exact match keywords. This allows you to tailor how specific your bid terms are allowing you to bid on whole categories. You know, for example, shirts all the way down to very specific terms for example, button down collar shirts, and everything in between.
Broad match and phrase match bidding is easier. However, the cost is appearing for irrelevant search terms, which wastes the spending, imagine that you’re selling a button down collar shirt. If you simply bid for a shirt, your ad could end up appearing for t-shirt or a clown shirt or for a Hawaiian shirt, etcetera. So by isolating keywords, pulling data on results over time, and using that information to guide exact matching bidding strategies, you could very well increase the relevance and lower the costs while maximizing conversions.
And this can be done either manually or by using analytics tools or reporting for instance. I will show the kind of report that I’m talking about in the end, but time for the second bonus tip, which is looking at your customer lifetime value. While Amazon creates customer value through a focus on three customer value propositions, low prices, quick product arrival, and a wide range of products.
Now, the more you can retain valuable customers without paying for advertising, the less you have to worry about paying for individual customers. Understanding your customer lifetime value allows you to provide long term context to your ACoS planning and overall Amazon ad strategy. The customer lifetime value gives you the best possible insight on the value of different customers, acquisition costs, and how that then impacts the best practices for ACoS. To give you an example, you know, your average sale value is $20 and you’re measuring over three years.
Your customers make five purchases during that time. So it is 20 to three into five, which is $300, on which your profit margin is 20%. Which means your customer makes you $60 for that lifetime. Another example, if you are a pet supplier and you have been able to track that purchase orders of dog food lead to high repeat purchases and upselling of other products, you know that investing close to break even ACoS on that product is far more aligned with long term goals than other products that seem to draw one off purchases. It’s very important to look and understand your customer lifetime value. Well that’s that for the bonus tips. Anuja, can we share the screen? Can you allow me to share my screen once, so I can also share the report that I was talking about?
Anuja Thulasi: Yeah, there you go.
Pooja Kothari: Here we go. So this is the report that I was talking about that provides detailed data on all your advertising metrics, along with your targeted keywords. So for instance, workout equipment would be impressions, click CDR costs, CPC conversions, everything that you need along with recommendations from DataHawk, with a reason, and a suggestion on what to do next with your bidding. Now, this is the kind of reporting which makes you know, managing your bidding, Amazon super, super easy, and really cool.
If you are more interested in this kind of report, or if you’re interested to just know more about this well, feel free to reach out and feel free to connect with me on my LinkedIn or send me an email. But this is it for this session. And with all the valuable tips at hand, you’ll be able to revamp your Amazon ACoS game and optimize your Amazon marketing with the strategies to reduce your ACoS and boost your ad performance. I hope this session was helpful to understand how to set goals specifically for ACoS and why bid optimization is magic behind it all right.
Anuja Thulasi: Yeah. And I just wanted to quickly add in case anyone was wondering at all the account that I was showing on DataHawk was the demo account. That’s accessible to the public as available on the website. So in case anyone just wanted to check out what I meant by these metrics, because obviously I did not go super in-depth when it comes to these tools and they’re super extensive. So if anyone wants to go, it’s a demo account, it’s open to the public. You don’t have to sign in or anything, you can just go in and check it out.
Pooja Kothari: Yes. And if you’d like us to go in depth with all the data strategies, we’d love to
do that in the next webinar. Just let us know.